Even as New Yorkers exit city en masse for vacations, residential leasing approaches boom-time highs
August 01, 2011 07:00AM By Candace Taylor in TheRealDeal.com
New Yorkers are fleeing the city in the scorching summer heat, trading subway cars for the Hamptons Jitney and business casual for bathing suits. Even so, the residential rental market is as sizzling-hot as the temperature, brokers say.
According to a market report released by the brokerage Citi Habitats, the average second-quarter rent for a Manhattan apartment jumped around 10 percent from the same period of 2010. Taking into consideration landlord concessions like a month of free rent, the median net-effective monthly rent paid by Manhattan tenants grew to $2,888 in the second quarter, up from $2,700 in the prior-year quarter, according to a report from Prudential Douglas Elliman.
“The rental market is going absolutely crazy,” said Bruno Ricciotti, a principal at Bond New York Real Estate. In some desirable neighborhoods, he said, apartments are renting for higher prices than they did during the peak of the real estate boom.
For example, Bond last month rented a studio in a West Village prewar doorman building for $3,100 per month, Ricciotti said. That’s an increase from February 2009, when the same apartment had rented for $2,200, and even from the summer of 2007, when it rented for $2,950.
In some buildings at least, “rents are at an all-time, historic high,” Ricciotti said.
When adjusted for inflation, though, the average Manhattan rent of $3,455 per month (with concessions included) in the second quarter is still far below the 10-year peak of $4,793, reached in the fourth quarter of 2006, according to Miller Samuel CEO Jonathan Miller, the author of Elliman’s report.
Still, it’s clear that for now, “the rental market is white-hot,” said Mike Akerly of the Akerly Real Estate Team at Rutenberg Realty.
The rental market is always strong during the summer, with recent college graduates swarming the city and families looking to settle in before school starts. But brokers said this summer’s rental market is considerably busier — and pricier — than those of the last two years.
“This summer’s activity has been brisk, and the market is tight and competitive,” said Gary Posylkin, director of leasing at Miron Properties. “This summer has a lot more in common with 2006 than 2009 or 2010.”
Posylkin said several of his agents have recently broken their records for deal volume and gross revenue.
“Rents are noticeably up from the past two summers,” said Ildiko Gugan, a senior associate salesperson at Citi Habitats. “Even areas such as the Financial District, where renters at one point felt [landlords] were giving apartments away, are up several hundred dollars a month, and no concessions.”
Ironically, this rental frenzy is due in part to the lukewarm sales market, industry experts say.
“The reason rentals are so busy is that people don’t have a ton of confidence in the sales market,” Ricciotti said. He added: “A lot of buyers are nervous to commit with all the economic uncertainty in the world, and many are renting while they play ‘wait-and-see.'”
The still-strict lending market continues to limit buyers’ ability to get a mortgage, and Wall Street layoffs loom on the horizon. Goldman Sachs, for example, last month announced that it is looking to cut $1.2 billion in costs, and could lay off some 1,000 people company-wide.
In contrast to booming rentals, “the sales market has largely been moving sideways,” Akerly noted. According to Bond New York sales associate Kevin Ryan-Young, “buyers are concerned about overpaying. Their fear is that the value of the apartment will decrease after the purchase.”
Elliman’s second-quarter market report showed that the median Manhattan sales price had fallen 5 percent from the same period of 2010. Sales activity, meanwhile, dropped 3.8 percent from last year but rose from the first quarter.
The presence of would-be buyers in the rental market is also shrinking the city’s stock of rental apartments. According to Citi Habitats’ report, the vacancy rate for rentals in the second quarter was 0.72 percent, the lowest quarterly vacancy rate the brokerage has reported since it began tracking data in 2002. (Rental inventory is notoriously difficult to track, however, with reliable numbers scarce.)
In response to the strong rental market, some homeowners are choosing to delay putting their homes on the market. “A number of potential sellers are choosing to hold on to their apartments and rent them for a profit,” said GieFaan Kim, an associate broker and director of new business for the Bracha Group at Keller Williams NYC.
Landlord concessions have now largely disappeared, and tenants no longer have much negotiating power, with building owners refusing to budge on rent and lease start dates. In fact, some tenants are now being asked to pay their entire year’s rent in advance.
Elizabeth Kee, an associate broker at Core, said multiple offers have been rejected for units at the new-construction rental building 791 Broadway.
“Even though they were full asking rent, offers were rejected because they were trumped by other renters offering full asking price with up to a year’s rent in advance, plus security,” she said.
Javier Amor, a sales agent at City Connections Realty, summed it up nicely: “Landlords are back in the driver’s seat.”